FOREX SIGNAL 9 December 2010

(Bank of England) will be rendering its interest rate decision today, and it would provide strong volatility in the market if BOE’s final decision turns out to be a surprise, here’s the forecast:

7:00am (NY Time) UK Official Bank Rate Forecast 0.50% Previous 0.50%
APF (Asset Purchasing Facility) Forecast 200B Previous 200B
ACTION: GBP/USD BUY 0.75% (Rate) SELL 225B (APF)

The Trade Plan
In the extremely unlikely event BOE hikes rate to 0.75%, we’ll buy GBP/USD immediately on a spike trade. Because of the level of this surprise, I think we’ll see a strong trend change for GBP in the next few weeks, so we should BUY and keep a small portion for larger gains…

On the other hand, if we get a surprise increase in the APF or better known as quantitative easing, it would send a bearish signal to the market, and we should SELL GBP/USD immediately.

I’ll be trading this release using my Spike Trading Method, for more information:
Henry’s Trading Methods.

The Market
UK’s BOE, Bank of England’s Monetary Policy Committee (MPC) is once again scheduled to release their interest rate decision today and the expectations are to keep both their official bank rates at 0.50% and APF (Asset Purchasing Facility) of 200 Billion Pound unchanged. The important focus as usual will be the accompanying BOE Statement if they decide to release one, and it is customary for BOE to only release a rate statement if there is a change in either the Interest Rate or the APF.

Out of all 34 analysts surveyed by Bloomberg, all agree that BOE will keep both Interest Rate and APF unchanged. As a matter of fact, most analysts predict that BOE should maintain this neutral stance until 4th quarter of 2011.

Additional Thoughts
However, if BOE surprises the market, we should enter on a BUY immediately because we should see strong demand for GBP and this demand will be sustained for weeks… so it doesn’t really matter if you get slipped 50 pips or your broker widened your spread, it should work out in the end…

If BOE decides to keep everything unchanged, we should stay out of the market as there is no reason to be in.

Pre-News Consideration
Since the forecast is unanimous for unchanged on both interest rate and APF, there is no pre-news sentiment on this release.

Historical chart and data for UK BOE Interest Rate


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